Today, hedge fund managers in the Canton of Ticino have at least 10 billion Swiss francs in assets under management (AUM), almost half of which is in single funds. What is it that makes the Canton of Ticino and its principle city of Lugano attractive to hedge fund managers? And what impacts are the upcoming changes to the regulatory framework in Switzerland going to have on the attractiveness of Lugano as a place to do business?
A stable environment
Operating within the Swiss system gives managers the advantage of setting up a business in an established, stable environment. This is facilitated by an agile and efficient government system, and the Swiss Franc, which, as a diversification currency, is protected from risk and has remained consistently strong amidst a global recession.
The tax system
In Switzerland, hedge fund managers are taxed according to how their activities are legally structured. At the cantonal and federal levels, no directives provide special treatment for alternative investment fund managers, which are subject to the provisions of law and regulations applicable to other taxpayers. Nevertheless, the flexibility of the ‘Ticino system’ enables companies setting up in the region to quickly establish a dialogue with the Tax Authority, evaluate their positions as taxpayers and determine ad-hoc solutions. This means managers can benefit from a tax treatment that is highly competitive in comparison with many other European and international environments, as well as from the efficiency that the Swiss tax system guarantees.
The current regulatory framework
The Swiss regulatory framework for hedge fund management is comparable to, and closely integrated with, the European and US systems. Functionality and transparency is guaranteed by the presence of the Federal Financial Market Supervisory Authority (FINMA).
According to needs and requirements, hedge fund managers have the right to choose the legal form most appropriate to their activities. Most managers opt for a corporation (SA), a joint stock company that requires a minimum share capital of CHF 100,000 in order to be constituted. Where a manager needs authorisation by FINMA, the minimum share capital is CHF 200,000, fully paid in, and must represent a minimum of one quarter of the actual fixed overhead costs for the past year.
The necessity of receiving authorisation to operate from the FINMA, on the other hand, is determined as a function of the fund’s domiciliation and/or intention to distribute fund shares to non-institutional investors.
Readiness to incorporate ongoing changes
One big question for managers thinking of relocating to Lugano is what effects the new European AIFM directive will have on doing business in Switzerland. There will, of course, be some impact on managers domiciled in Switzerland, especially in instances where their activities are intended to include distribution in the EU. However, Swiss authorities have been actively incorporating the changes and ensuring Switzerland’s competitiveness, both during the 2013-2018 transition phase, and on an ongoing basis.
Hedge fund managers are likely to be affected by the directive if:
– Management of one or more alternative investments is registered in one EU member state;
– One or more alternative investments are marketed in European territory, independently of whether they are registered in Europe.
Not falling within the scope of applicability of the European directive are:
– Hedge Fund Managers that do not target EU clients rather than funds domiciled in Europe;
– Hedge Fund Managers that manage alternative investment funds with assets of less than €100m, or €500m if they are not leveraged, and have a minimum lock up period of five years
The important thing to remember is that the changes to the regulatory framework aim to bring Switzerland in line with European standards. Switzerland is responding to increasing demand for tight regulation and transparency, and the effort will eventually lead to increased safety, reliability and continuity for finance-based businesses.
Services and infrastructure
The Canton has a tradition of providing the sector’s various operators with the professional and technical expertise to support their businesses.
The wide number of firms that can provide legal, tax, insurance, and IT services is accompanied by access to anairport only 15 minutes from Lugano, and a railway system that enables travel to principal Swiss and non-Swiss centres.
Specialised boutiques of business attorneys, fiduciaries, corporate law and accounting experts, and insurance work side by side with the subsidiaries of major multinationals, which are able to provide a global profile for operations conducted in Italian Switzerland.
Lugano recognises the importance of state-of-the-art technical infrastructure. Consequently, there has been an increase in the number of fibre optic installations and development of an IT centre specialising in supporting the growth of Switzerland’s third largest financial centre. Transport infrastructure is also important and constant improvements are being made in order to meet with the demands of businesses. Various projects are in progress, including:
– Lengthening of the Lugano-Agno airport runway, to enable expansion on the destinations already available.
– Completion of the new railway link between Lugano and Malpensa, scheduled for 2013, which will make it possible to reach Milan’s International airport in under an hour.
– The opening of Alptransit in 2017, the longest tunnel in the world, enabling travel from Lugano to Zurich in just over 90 minutes.
A highly skilled workforce
With approximately 180,000 employees working in the three major sectors of the economy, the Canton of Ticino has access to a human resources pool of approximately two million people, also encompassing a major section of Lombardy. A high educational level is the principle feature of the Lugano workforce – 30% have a university degree and 60% have post-secondary education.
High-quality education is provided by the business and economic schools of USI and SUPSI, while further education is provided by Swiss universities including the University of St Gallen and the IMD in Lausanne. Lombardy-based universities further augment and enhance the local labour force.
Swiss quality of life, with a touch of Italy
For years, Switzerland has been rated internationally as having one of the highest qualities of life in the world. Residents have access to a reliable public transport system, allowing them to travel widely throughout Switzerland. Ticino’s healthcare system is among the best in the world due to cutting edge technology and constant research. A calm and stable social environment and a low crime rate help to make Lugano an attractive place not only to do business, but also to live.
Ticino’s proximity to Italy is reflected by its Mediterranean climate and its cultural way of life. Like Geneva and Zurich, the increase in managers who have decided to re-locate their businesses in Switzerland has enlivened a young community that is rapidly integrating with an established financial centre.
Interview with Fabio Frontini and Stefano Ruggiero, Directors of Abraxas Capital Advisors SA.
Our story began ten years ago in London with the creation of Abraxas Capital Management, an FSA-authorised alternative asset manager. In 2008, Abraxas Capital Management’s managers chose the Canton of Ticino as the place to relocate some of their competences, and formed Abraxas Capital Advisor SA, an advisory company that provides advice to the London-based parent company.
Why did you decide to establish your business in Ticino?
There are two key aspects that we considered when choosing the location. Firstly, the framework conditions for doing business. In Switzerland, we found competitive taxation compared to other European countries and a level of streamlining in administration that is hard to find elsewhere: setting up our business took less than two months.
Lifestyle considerations were no less important. These include quality of life, security and organisational simplicity, as well as the benefit of enjoying the beauty of the local countryside.
One important aspect is the availability of assets: as well as being able to establish a direct connection with clients. On an operational level, the simplicity and speed of administrative requirements allows us to devote all our time to our core business, generating value. Competitiveness in terms of costs should not be overlooked either: consider the difference in rents compared to other European and Swiss centres.
Born in 1962 in Lugano, Franco Citterio began his professional career in 1987 working in the banking industry. He has been Director of the Ticino Banking Association since 2003.